Exploring Agent-Based Methods for the Analysis of Payment Systems: A Crisis Model for StarLogo TNG

32 Pages Posted: 28 Oct 2008

Date Written: September 8, 2008

Abstract

This paper presents an exploratory agent-based model of a real time gross settlement (RTGS) payment system. Banks are represented as agents who exchange payment requests, which are settled according to a set of simple rules. The model features the main elements of a real-life system, including a central bank acting as liquidity provider, and a simplified money market. A simulation exercise using synthetic data of BI-REL (the Italian RTGS) predicts the macroscopic impact of a disruptive event on the flow of interbank payments. The main advantage of agent-based modeling is that we can dynamically see what happens to the major variables involved. In our reduced-scale system, three hypothetical distinct phases emerge after the disruptive event: 1) a liquidity sink effect is generated and the participants' liquidity expectations turn out to be excessive; 2) an illusory thickening of the money market follows, along with increased payment delays; and, finally 3) defaulted obligations dramatically rise. The banks cannot staunch the losses accruing on defaults, even after they become fully aware of the critical event, and a scenario emerges in which it might be necessary for the central bank to step in as liquidity provider. The methodology presented differs from traditional payment systems simulations featuring deterministic streams of payments dealt with in a centralized manner with static behavior on the part of banks. The paper is within a recent stream of empirical research that attempts to model RTGS with agent-based techniques.

Keywords: Agent-based modeling, payment systems, RTGS, liquidity, crisis simulation

JEL Classification: C63, E47, G21

Suggested Citation

Arciero, Luca and Biancotti, Claudia and D'Aurizio, Leandro and Impenna, Claudio, Exploring Agent-Based Methods for the Analysis of Payment Systems: A Crisis Model for StarLogo TNG (September 8, 2008). Bank of Italy Temi di Discussione (Working Paper) No. 686. Available at SSRN: https://ssrn.com/abstract=1290520 or http://dx.doi.org/10.2139/ssrn.1290520

Luca Arciero

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Claudia Biancotti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Leandro D'Aurizio

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Claudio Impenna (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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